Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, Commissioner of the New York City Police Department (“NYPD”), announced today criminal charges against CARLOS PANIAGUA, a/k/a “Carlos,” a/k/a “Carlito,” a/k/a “Cee-lo” (“CARLOS PANIAGUA”), JOSE OSVALDO PANIAGUA JR., a/k/a “Osvaldo,” a/k/a “Calvo” (“OSVALDO PANIAGUA JR.”), JOSE RAFAEL PANIAGUA, a/k/a “Rafaelito” (“RAFAEL PANIAGUA”), JOSE OSVALDO PANIAGUA SR., a/k/a “Nano,” a/k/a “Viejo” (“OSVALDO PANIAGUA SR.”), JOAN TORRES, a/k/a “Ronco,” and JOSE BORGEN-REYES, a/k/a “Benny,” a/k/a “Benny Blanco,” a/k/a “Scar,” for operating a massive prescription drug diversion ring, including the trafficking of both oxycodone and expensive HIV medication, out of Joaquin Grocery & Deli, a grocery store in the Bronx. CARLOS PANIAGUA, JOSE OSVALDO PANIAGUA JR., and TORRES were arrested yesterday and were presented in Manhattan federal court before Magistrate Judge James C. Francis IV. JOSE OSVALDO PANIAGUA SR. surrendered to authorities last night and will appear in Manhattan federal court before Magistrate Judge Michael H. Dolinger later today. BORGEN-REYES was previously in custody in Burlington County, New Jersey, and will be transferred to federal custody at a later date. JOSE RAFAEL PANIAGUA remains at large. Concurrently with the arrests of the defendants yesterday, and with the assistance of the New York City Law Department, the doors to the Joaquin Grocery were padlocked pursuant to a judicial order from Bronx Supreme Court.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, instead of earning an honest living at their grocery store, the defendants turned it into a drug market that took advantage of impoverished Medicaid beneficiaries, spawned violence in its neighborhood, and endangered public health and safety. Today the defendants face prison time for their actions, and the Joaquin Grocery is thankfully closed for business.”

FBI Assistant Director-in-Charge George Venizelos said: “As alleged, the defendants placed their own financial gain over the public’s health and safety. They defrauded Medicaid and the U.S. taxpayers while threatening the health of patients whose prescriptions were filled with diverted, mishandled and repackaged medications. We will continue to work with our law enforcement partners, including the NYPD, to prevent the illegal sale and misbranding of pharmaceuticals.”

Police Commissioner William J. Bratton said: “These individuals illegally amassed large quantities of prescription narcotics for resale and endangered the health of potential recipients using dangerous methods of repackaging and storage. Thanks to the efforts of our investigators, our federal law enforcement partners, and the prosecutors involved in this case, this illegal prescription drug ring has been shut down.”

According to the Complaint unsealed yesterday in Manhattan federal court, and statements made yesterday in court, it is alleged that:

All of the defendants except BORGEN-REYES currently operate Joaquin Grocery & Deli (the “Joaquin Grocery”), a grocery store at 598 Morris Avenue in the Bronx, New York. In addition to selling grocery products, the Joaquin Grocery has operated for years as a marketplace for Medicaid Beneficiaries to sell their Medicaid-reimbursed prescription medication, including Oxycontin, Percocet, and expensive HIV medications. The successful drug trade at the Joaquin Grocery has led to numerous acts of violence both inside the store and in its immediate vicinity. For example, in October 2010, a former competitor of the Joaquin Grocery was shot twice, including once in the head, while attempting to steal customers from the Joaquin Grocery just a few stores down. In March 2014, OSVALDO PANIAGUA SR. and RAFAEL PANIAGUA were held up at gunpoint inside the Joaquin Grocery in an apparent drug robbery.

The drug transactions at the Joaquin Grocery typically took place in a small room behind a door at the back of the store, where Medicaid Beneficiaries provided their pill bottles to the defendants for cash. With respect to non-controlled medication such as HIV medication, the defendants removed the patient labels from the medication bottles with lighter fluid, which contains toxic substances, so that the bottles appeared brand new and could eventually be re-sold to pharmacies. With respect to controlled medication such as Oxycontin, the defendants amassed large quantities of pills and re-sold them on the street.

Search warrants were executed at the Joaquin Grocery and at 532 Tinton Avenue, Apt. 1C, which is a stash-house used by the Paniaguas. Search warrants were also executed on two cars that the Paniaguas used. Approximately 1,000 bottles of prescription medication and hundreds of loose pills (both controlled and non-controlled substances) were seized in the store and the stash location. Agents also seized a machete at the store, and, from the stash location, lighter fluid and cotton balls (which are typically used to remove patient labels from the medication so it can be re-sold). Agents also seized thousands of dollars in cash.

CARLOS PANIAGUA, JOSE OSVALDO PANIAGUA JR., and RAFAEL PANIAGUA are brothers who were in charge of the drug business at the Joaquin Grocery. JOSE OSVALDO PANIAGUA SR. is their father, who assisted in the purchase of prescription drugs at the Joaquin Grocery. TORRES provided armed security, operated as a lookout, and also engaged in the purchase of prescription drugs at the Joaquin Grocery. BORGEN-REYES previously played the same role as TORRES until 2012.

CARLOS PANIAGUA, OSVALDO PANIAGUA JR., RAFAEL PANIAGUA, OSVALDO PANIAGUA SR., and TORRES, of the Bronx, New York, and BORGEN-REYES, of Paterson, New Jersey, are each charged with one count of engaging in a conspiracy to distribute and possess with the intent to distribute a controlled substance and one count of engaging in a conspiracy to commit the unlawful misbranding, adulteration and wholesale distribution of prescription drugs. They each face a maximum of 25 years in prison (20 years on Count One and 5 years on Count Two). The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the investigative work of the FBI and NYPD, and thanked the New York City Law Department for its assistance.

Mr. Bharara also thanked the the FBI’s Health Care Fraud Task Force for their work in this investigation, which he noted is ongoing. The New York FBI Health Care Fraud Task Force was formed in 2007 in an effort to combat health care fraud in the greater New York City area. The task force comprises agents, officers, and investigators from the FBI, NYPD, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management Inspector General, U.S. Food and Drug Administration, New York State Attorney General’s Office, New York State Office of Medicaid Inspector General, New York State Health and Hospitals Inspector General, and the National Insurance Crime Bureau.

This case is being handled by the Office’s Violent and Organized Crime Unit and Narcotics Unit. Assistant U.S. Attorney Russell Capone is in charge of the prosecution.

The charges contained in the Complaint are merely accusations and the defendants are presumed innocent unless and until proven guilty.